tv Supreme Court Decision on Online Sales Tax CSPAN July 16, 2018 1:07pm-2:06pm EDT
free with the c-span radio app. and coming up thursday, the senate banking committee is going to hold a confirmation hearinging for the nominees to lead the consumer national bureau and the export/import bank. live coverage at 10:00 a.m. eastern here on c-span3 and also online at cspan.org and the free c-span radio app. the con gregressional inter caucus held a caucus on the recent supreme court ruling that states can collect sales tax on retailers who don't have a presence in that state. brick and mortar businesses talked about the next steps that congress would take in response to the court's decision.
all right. h hello, everyone. thank you for coming. this is a congressional internet caucus academy panel on the south dakota and the wayfayer decision that came out a few short weeks ago and actually one of justice kennedy's final decisions before his retirement. we want to thank the congressional internet caucus which is hosting this event in conjunction with the academy. the co-chairs on the house side of the internet caucus are representative bob goodlatte and represent ennis shoe and also john thune and patrick leahy. this briefing is the second in the skoe the tus tech series which explores how nations's oldest and highest court deals with cases involving technologies. we will havet another event on july 3rd discussing generally
how the supreme xoucourt is engaging with technology now and how it will continue to engage with the technology policy issues in the future. feel free to use the #skoe the tus tag throughout the discussion and we hope that you will join us throughout the summer. #scotus. so briefly joining us on the panel is am man da kel lar from the international municipal lawyers association. we have george yi sisaacson who from brandon and he argued the case for way fayer in front of the supreme court and counsel for net choice. to his right we have jennifer platt from the international council of shopping centers and finally mike dabbs from ebay. i want to thank you all for being here. and we are looking forward to the discussion. before we start, i would like to give a little bit of the brief background on the decision.
so south dakota v. wayfare stems from the south dakota statue passed in 2017 to allow the state to compel online retailers to collect state sales tax on sales made to south dakota residents. the bill had a few stipulations, and namely that the only companies, only online retailers are forced to come ply with this are those with sales over $100,000 or with more than 200 different transactions to residents in the state. those were the only companies that fell in the purview of this law. and, so only kind of larger online retailers were affected and wayfare and retail stock and new egg which did not comply with the law originally citing a 1992 precedent in quail v. north dakota, which actually made it illegal for states to force
online retailers to collect sales tax unless they had a physical presence in the state. so, this is essentially has allowed ecommerce companies and other online retailers to avoid collecting sales taxes, and kon s consumer s who shop online are still technically required to pay a use tax when they shop online and however that has a pr pretty low compliance rate. so, this is what has been the status quo as the ecommerce eco system and the internet ecosystem has developed and grown, but this is a decision that is overturning that and ruled that quail was wrongly decided and now this south dakota statute has been upheld. justice kennedy wrote the majority opinion joined by thomas, alito, ginsburg and gorsuch, and chief justist
roberts with sotomayor and kagan and so now it is looking that states have the latitude now to pass their own internet sales tax a statutes whcih is going to force the online retailers to collect that tax. so by way of background. so i want to jump into the discussion and now, ask each of you what are the immediate implications and consequences of the decision for kind of each of the sectors. so we have online retailers and municipal governments and shopping centers and brick and mortar stores and what does this look like for each of the perspectives perspectives. >> i can jump in here. and so i think that to understand what this is looking like for the state and fed a ral government, it is important to step back to look at what quail
di did, and what the effect was on the state and local governments. matt touched on it, but one of the most obvious impacts was states and local governments were unable to collect the sales and use taxes for many years, and estimates sort of varied as to how much money was at stake here, but on the low estimate, we were talking about something like $8 billion a year of lost revenue no the local and state governments, and so it is a huge amount of money that the state and local governmentses were losing out on and it is taxes that were owed, but the consumers did not understand that they had to be paying the use taxes and the collection percentage is between zero and 4%. so now that the quail decision is overturned, it is money in theory to be collected by the state and the local governments now. and now, as to whether that is going to be happening immediately, i think that it is going to be ta-- going to be
taking some time with the decision, and really hess was the law of the land for 50 years or so, and the states are going to the have to enact their own legislation here, and south dakota specifically drafted this legislation to the overturn quail, and not every state has legislation teed up like that. from the local government perspective, you know, you also have impediments to the local tax collection and state laws that might prohibit the local governments from collecting and those laws have to be amended. there is also the streamline sales and use tax agreement which others may get into it, and it is also i think a very good effort at trying to simply fit for the online retailers who want to collect money and one downside from the local government perspective is that it is going to essentially create a uniform sales tax within a state, and preempting any local tax rates and if the city has a higher tax rate than the state sets in that agreement, and so there is going
to be question ss as to what is going to happen, is the city going to have to amend the local tax code and apply a higher rate to brick and mortar and then the last thing they want to say before letting other people jump in here is that the money obviously going to be a very good thing. from our perspective, this is a huge win as a result of that, but in our perspective, it was not just the billions of dollars at stake for local governments but the secondary impacts of the local governments as result of the quill decision, so as specifically the brick and mortar stores were closing down, and we will hear more of why that may have happened but as they were closing down in part because of the quill decision, you lost sort of the main street of ocities and towns. you lost the town center, and so that is not only impacts what the community feels like, but lowers the property taxes, and decreases the property values around it, and increases municipal services to have to combat nuisances and crime. so a whole host of the secondary
impacts that i am not sure that overturning quill is doing to immediately impact, but from our perspective, those consequences were severe, and pleased with the result that we can sort of move forward on collecting sales tax at this time. >> well, i think that in answer to matt's question of the immediate implication and consequences are, probably the greatest interest of this audience is the role that congress plays. congress is now the venue, to a arena where the policy issues really entered. both the majority decision, and justice kennedy recognized that congress has a role the play, and congress has the authority to set the rules on what is appropriate and not appropriate for the states to exportt their taxes across the borders and require the across border complications, and the chief justice in his dissent joined by three other justices who were
emphatic to the regard it is congress, and the people who are interested in this issue in the room who should now turn their attention to this issue. i want to quote a few senators from the chief justices dissenting opinion. he said that any alteration to the rules with the potential to disrupt the development of such a critical segment of the economy can be undertaken for congress. it went on to say that majority decision, quote, easily disregards the cost that the decision is going to impose on the retailers and regularly calculating the sales taxes on the ecommerce sales are likely to prove baffling for retailers. over 10,000 jurisdictions with these sales taxes and each with a different tax rate, and rules for tax exempt goods and service, and different product c category, and different standards for determining whether an out of state seller has a substantial pres mens the jurisdiction. he was especially concerned
about the presence of the small businesses and the third would fall disproportionately on the small businesses, and the vitalization of the internet has been placing other issues, and we will go on to talk about that. and he said that the court's decision is going to have the opportunity to dam penning commerce and a good reason to leave the matters to congress is that the legislators may more consider the competing interests at stake. all that the wayfare decision concluded is that the physical presence is no longer the standard to be a applied. justice kennedy refered to it as an an ak ro acronis tick clause there are other questions of imposing these cross border implications is a burden of the
commerce clause and those remain to be litigated. i believe that most importantly, the obligationings and the opportunity for congress the take what is really the chaos, and chaotic condition that the wayfare decision has e krcreated set order to it. the point here is that not that the states should be deprived of the revenue associated with the richest transactions of the consumers in the state, and the court has spoken to the issue. the question is what should be the rules of the road. and we believe that those rules should be set by congress, and they should involve greater simplification, and greater uniformity, and protection from retro liability, and the system which makes it possible for the state to receive the revenue that they are desiring without burdens being imposed on congress, and what is necessary in order to achieve that is the transition period.
we would also like to believe that congress' responsibility to set a more tomorrow of the modest, but reasonable length to allow companies to adapt to the substantial new requirements that will be associated with tax collection collection. >> so there is a lot there. a lot there from george to react to. i want to go back to the question from matt's question which is the immediate impact and from the shopping centers and the brick and mortar retail community and not even them but also the wholesale can community who have been a part of the marketplace in this fairness coalition. one is perception of this idea that the internet is tax-free is going to be wiped away by this decision, and the internet has never been tax-free. as matt noted, the taxes have always been owed, and now there
is a means to collect it. the second swun a functional one, which is that we have seen hurdles to entry into the commercial market, and take that back. we have seen the online sellers moving into the marketplace, because of a recognition of the multi channeled retail is the best way to the reach your customer base. this decision, the quill, the previous standard under quill put an artificial hurdle there that stopped some of the online sellers from wanting to enter the physical marketplace because of a concern over creating nexus that wasn't currently there. i think that we will see it now erased, and we will see a number of online retailers moving into the physical place as well as small sellers looking at pop-up opportunities in shopping centers and in other locations. so i think that it is going to be a really positive aspect to this in the marketplace to drive innovation of what improves a customer experience. i think that there is a role for congress and the marketplace
fairness coalition has been working for a decade to really come up with the legislation that would have addressed this as called for in the 1992 decision in quill. i think that it is going to be a little bit more of a challenge now to see how, because i think that there is a real push to see how the states implement, this ruling from justice kennedy. i think that you are not going to be seeing the chaos that is overblown, because it is going to be a thoughtful and orderly process as the states are not au automatically throwing out lines saying, your collections are owed. but i think that we will be seeing a number of states thoughtfully and methodically roll out the standards based on the south dakota law in the coming weeks that it will be very clear. so there are 24 states that are part of the streamline today. of those states, there is thousands of online retailers
that are collecting using the software available under streamlined. so there is, it is already being done and it can be done, and i think that we will see it happen smoo smoothly across the board. >> thanks. my thanks to mike dabbs for this panel and the look at wayfare and forcing congress the act. let me explain how ebay is sitting in this discussion. i have been at ebay for less than a year and half and don't have the long experience of j jennifer and george and others have had on the single issue. coming in a year and half, it is apparent how much misunderstanding around the mechanics of how a lot of this works practically and just, you
know, certain state laws should not be underestimated as we go through the next process. ebay is not a retailer. ebay is about 23 years old now, and a has always been since day one. a 100% pure online marketplace meaning that nothing on ebay's site that you buy or sell does ebay own. we don't is any inventory, and we don't have any warehouses, and we don't do the logistics, and no trucks or anything like that. we simply connect the buyers and the sellers from across the country and around the world and it is what we have done from day one. what this has allowed is ebay and other marketplaces and et si and others is to allow a real m empowerment, an empowerment of the small businesses and empowerment of the en tre ptreps
to come on line to be able to sell their goods and reach customers in places that they never thought that they could do before. and that has happened in no small part in the overarching framework of how we look at small businesses on the internet, and startups. and not overly burdening the small businesses in ways that create market entry problems and in ways that create a lot of the excessive costs and compliance and unnecessary red tape and headaches that stops small b businesses from becoming so many of the big businesses that we have seen before. so our take away from the court cases are the court case is simple. we were disappointed, and we thought that 50 years of the supreme court precedent should have been left alone, and
however, we when looking at the case, it is clear that the justices were focused solely on large, and not solely, but they were focused on the large retailers and how the large retail thors operated in marketplace. what we were encouraged by is justice kennedy and the majority opinion being very clear that small businesses under a commerce clause interpretation, and as we go to the due process clause as well, it is completely different than large retailers, and ebay and about 6 million sellers on the ebay in the u.s. and a lot of them are you and i trying to sell old bike parts or the old camera or whatever, and hundreds of thousands of those are small businesses that i talked about. some of which have grown up to be bigger businesses. and we were very encouraged to
see that in justice kennedy's opinion he laid out three factors as to how a small business should or does under the south dakota law receive a reasonable degree of protection. a factor one is that the business needs to do a significant amount of the business into a state. south dakota's law, and i leave you guys with anything here today this is the most important, the south dakota law at $100,000 or 200 transactions, but take the $100,000 of remote sales and extrapolate that across the country, it is a 37 million or 38 milli$38 million threshold. so what we are very concerned at, and that is factor one, and two is no retroactive ti and three being a member of the simplified sales tax and use agreement of which only 30% of all of the consumers in the u.s.
are in that and so there is a lot of work to be done there. and so, when we go look at that reasonable degree of protection, what we are concerned with other states because south dakota, a very small state, and four states are smaller than south dakota and the other states are trying to come down to the standard and rather than look at the standard to what the justices said which is a number that should be big enough to keep small businesses out of the equation so that they are not subjected to 10,000 different tax and jurisdictions across the country. so we are look at it from the small business perspective and while we are disappointed in the court case, we are encouraged of some of what the justices, kennedy and the others in the opinion had to say, but it is clear that it is time for congress to act. i know that we will talk more about that. >> definitely. thank you all for those perspective perspectives. one thing that we should touch on and was touched on a little bit in the comments was kind of
the next steps for state and local governments. so this is more for am man daan j jennifer. jennifer, you mentioned that it is not going to be kwut as chaotic as a process as some people are claiming or predicting. and that these states and municipalities will have sort of a thoughtful approach to passing these laws that may mimic the south dakota statute. one of the questions around that is that even if each of the states and local governments has this thoughtful process in creating the laws just the sheer number of these governments could lead to chaos despite the best of intentions, i think. so kind of how do you react to that argument with the good processes and the precedent with
south dakota's law, like some states and municipalities might be looking to low ter tlehreshos or have different legislative features in the laws. so how do you react to that? >> i think that the supreme court provided a pretty clear pathway for the states to look at south dakota. and i think that mike did a great job of outlining what those standards are for other states. and we expect that, you know, one of them is that, you know, they complimented south dakota on being part of the streamline in sales tax sales and used a tax agreement which is providing a lot of the the simplifications, and one collection point. so this is really some important simplifications that often get missed. you know, as we have been wos working on the legislation, and the such as the remote transactions purity act that would have taken the 10,000
jurisdictions to make it into 45. so there were some, and there have been a number of simplifications that have been sugge suggested, and i think that the supreme court provided a really clear pathway for the states to follow and we will be encouraging the stateses to do just that. will they, you know, it is really now the state's rights to question that needs to be challenged and i fully expect litigation that is going to push on various stateses, and i know that there has p been some, i guess rumblings about california for instance. and so, you know, there may be additional litigation that is coming forward to, to provide additional clarification, but, we will be encouraging the states to follow what the supreme court suggested. >> if i could comment on both
j jennifer's comments now, and the other earlier comments. she stated that she thought that there was an orderly process that the states were following, but the experience that we are observing is that there is in fact considerable confusion and chaos, and for example, some states are applying the laws retroactively and the states like massachusetts, hawaii and massachusetts is going back to october 2017, and even though the decision was decided in june of 2018. hawaii is going back to january 1 of 2018. so the real issue is the retroactive application of the state and the mandatory tax collection laws. there are other states that said that we are starting our obligation on july 1 of the states like kentucky and vermont and mississippi. totally unrealistic for the companies to be able to not only acquire the software, but to integrate the software and
develop the compliance structure for doing so. and so the states have been unsympathetic to the issue that this is a matter that requires a grace period before its imply ple men a tatation, and congress can step in and address that issue, and congress can establish the moratorium in that period, and congress can enact legislation to protect the companies from retroactive liability, and that is why the real arena for the next step is congress. i am pleased to hear that jennifer feels that things like mandatory streamlined p participation should be a requirement unthor the commerce clause. congress can make it a law if there is litigation to determine the element of majority decision is mandatory or reconciliatory to cry out for clarity. i don't see where the states or
the big box retail thors or the -- retail the ilers or the e electronic merchants are going to comply without legislation. >> and george, the idea that there is chaos in the implementation here, and we need a moratorium, and forgive me, because i don't remember the name of the fourth defendant in this south dakota case, but it is remind me off who it was? >> system x. >> okay. so if i recall correctly system x was in lawsuit and south dakota sued for declaratory judgment and they said, okay, we will comply. i could be wrong on this, but i many understanding is that they started to complying essentially overnight, so i a realize that the response may be, well, they are a huge company versus the small businesses that we are concerned about here, but it is possible for a companies to start complying particularly with the streamline sales tax agreement and there is software
available and paid for by the states, and it is not perfect yet, but the idea that we need a moratorium here is, you know, pushing the envelope a little too far. >> and let me clarify the record. system x agreed to start paying the tax and not collecting the tax. when wyoming passed a identical law to south dakota based on the experience in south dakota, system x said that we need six months in order to implement the system, and wyoming agreed to give them a six-month grace period and so even a large company like system x needed a transition period in order to collect. what that means for the smaller companies, and mid--sized and smaller companies that neither have the accounting staffs or the software or the integration, and especially as we have been now entering the fourth quarter which is for many direct marketing companies is their major quarter for sales and for them to have to carry the burden of them dealing with this issue at the same time that they have the major retail sales period is
not practical for them. they will be ending up not pr properly complying and conforming and subject to assessments and having liabilities that they did not anticipate and which could have been avoided. >> okay. could i also just, you know, one of the biggest concerns that we have is that in the rejection of the physical presence rule that states are now, you know, empowered in ways not absent of what the court has said to start to require businesses that have no physical connection to that state, to do the collection of remittence for those sales. and the concern about that a lot of of times is that it goes back to the old, you know, the old kind of the tax a dage of don't
tax me, and don't tax you sh, b the guy behind the tree. so if you can levy a tax on somebody who is 3,000 miles away who has a small to medium-sized business and you can say to them, hey, we think that you owe a lott more than you paid us, come up here and in wisconsin tax court. it makes that dynamic of out of state jurisdiction and cross border reach really scary. i think that when we are looking at wisconsin, what they have come out and said, because governor walker wanted to announce that there would be a tax cut is that because of the additional revenue from the are remote sales tax purposes that wisconsin resident s wis will g corresponding tax cut. the real concern is when, you know, they are trying to get every dime, how does that apply
to small businesses. like george said, without the sophisticated tax and compliance departments. wisconsin is relying on the 2013 statute that is not a p new statute and it does not follow what the court has said. it will result in litigation. and we will be seeing more and more of that type of thing across the board. so when george is talking about the tax moratorium, we are in total support and there needs to be a pause to allow congress as well as the states and don't forget that george has argued in the supreme courts that i would not presume to have the legal analysis here any better than him, and but the wayfare court did not say that the south dakota law is constitutional and they said that you can't use the location as the determining
factor of the nexus, and now go back to the court to figure out if it is constitutional, and so even south dakota has to figure out whether their law is constitutional and we shouldn't just race to get ahead to provide tax breaks or the political benefits in order to try to collect this revenue as quickly as possible. >> i think that an important maybe misunderstanding is that the tax is not on the business. the tax is on the consumer who is purchasing the product. and it is a consumption tax, and so it is the consumer in wisconsin who would be paying the tax. and as far as the regulation on the business that is not physically locate ed ind in the. there are a number of examples, but the one that comes to mind for me are wineries. there are a lot of wineries that don't like certain states' shipping laws or wine distrib e distribution laws, and they say, i am sorry, we won't sell to those states. so a state like wisconsin or others where a seller finds it
too burdensome to avail itself to that customer base, they can opt out. they can simply say, we don't sell to that state. and i think that is the cost of, and what the decision said, if you were going to be doing b business in the state, and if you are going avail yourself of the consumers in the state, then you need to be collecting the sales tax of that state. >> all right. thank you. one of the important questions that we are at now is, and we have touched on it quite a bit is kind of where can congress go from here and obviously we are in the rayburn house office building now, and lot of people are kind of interested in the lay of the land going forward n. congress and both majority and dissenting opinions recognized
that ultimately this question can only fully be resolved by congress. so to each of you, i would kind of ask what is a sats fac trun legislation looking like, and what would be a good compromise of whebetween where we are sort now and where we were when quill was still in place? >> i think that on one level i dispute the idea that it can only be resolved by congress at this point. from our perspective, the states are consider ed the laboratorie of democracy, and so there is an opportunity for the states to go out and work on tailoring legislation that is specific to their needs. i am not necessarily opposed to congressional action here, but i wonder about the one-siz
one-size-fits-all approach talking about the states rights and federal principlism. and south dakota is very different from california and maybe more litigation of how the states are doing, this and a that is sometimes how we find some of the solutions. so i am not opposed to the congressional action but if it needs to happen, we need to be careful to weigh the state's rights as you are considering this. this is money that is sorely needed by state and local governments and it has been e ow owed for a long time. the i am not aware of the liability issues that is an area for the congress to sledge slate in and my only understanding from that comes from the briefing that said that it appeared as though 40 states had their own state law or state principles that would prohibit retroactive liability, and obviously, i am reading that from the briefs, and i believe that there are maybe states that are acting differently there.
and so that is an area where we would agree that congress could come in and prevent some of the heartache for some of the small businesses. you know, i would certainly welcome the opportunity for states to act in this area. >> let me just add some context that may be helpful to matt's question. in the european union, there is the vat tax and the european commission which is the executive arm of the european union came out with the study that said that requiring the companies to comply with 28 soon to be 27 different vat regimes was in fact a burden on commerce among the european union states and that it was suppressing the development of cross border sales electronically, and improposed instead to simply ti the system and have it administered of a bay state system quite similar to what we
have in this country and canada in the fuel tax system. so you take 28 jurisdictions that were too complex in europe and you compare it to the 12,000 jurisdictions that we have in the united states, and it cries out for action pro quo here is states if they are able to transport their goods across state borders and municipals and borders, there needs to with be simplify caution, so matt, what should federal legislation look like? it should act quickly to protect against the retro active liability. it is interesting that in the 40 states that the joined the colorado brief that you are mentioning, they did not disclaim retroactive liability, but they said that each state would have to decide that issue themselves, themselves, and that is a threatening concept that direct marketers are seriously concerned about and some states are acting in that adverse
direction and congress should act to say no retroactive ti, and congress should establish a six-month moratorium to get past the fourth quarter, and to give the companys a chance to collect, and then the adopting the reasonable simplification requirements of those that are part of the use tax agreements that jennifer has referred to and mike has referred to, the rate simplification should be part of this. one rate per state for all remote commerce simply makes sense. the companies should not be subject to not only 46 different states with the sales and the use taxes and be subject to audit, but the home rule jurisdiction asjurs dic dick -- jurisdictions, and there are over 500 home state audits that are participatinging, and so one home audit makes sense. no reason that definition of
products should vary. in the dissenting opinion, the chief justice points out why should twix and snickers be subject ed subjected to different tax treatment in the same state. it does not make sense. why should sneakers be athletic equipment in one state and apparel in another. and uniform system to identify. it is not taking money away from the states, but it is taking an american economy that is increasingly reliant upon electronic commerce and to rationalize it and modernize it and contemporize it and these are the steps that congress can take without in any way harming states in regard to the revenue that they are anticipate getting and will be getting as result of the wayfare decision. >> so i would like to say that i wish that the points that george just laid out we could have had that conversation 5, 4, 3 years
ago. before this case moved forward to the supreme court and the supreme court made its decision quill. because a number of those things are built into the marketplace and the fairness act incentive that passed in 2013 or the remote transactions parity act which has p been introduced in a couple of congresses and carried by congresswoman nome and those are a lot of what we have been saying is that there is a pathway to simplification and collection that would have been a win for everyone. that is not the con vversation that we have been having. and so from the practical standpoint you have to look at the votes and the states, and where the votes in the states are, and so susda has, which is my short version of the streamline, and they have 24 states an none of the big ones for the most part. so you don't have california, texas, new york, florida.
i think that it is going to be really difficult to get those states to submit their taxing jurisdiction to a third party or group. they have said basically they won't do it. so is that is when we came to the two pathway approach to ale lou for the susuda states to grant collection authority and to have those other states to have to meet some other simplification standards. i think that it is, if congress does take up legislation, that is going to have to be a practical conversation that is had. i think that there is a number of other conversations and topics that need to be dealt with, with the foreign sellers and with the retroactive ti, and certainly there is both functional and fairness issues along with that. i can tell you that for the marketplace fairness coalition, you know, our membership is split at this point. we do have members who would like to see simplification, and we are have members that believe
that the states should have the ability to move forward, and implement their own laws using the restored rights under wayfare. so from a practical standpoint there is challenges to moving quickly, and however, you know, let's let the process work. let's have some regular order, and let's, i think probably a hearing would be at the minimum an opportunity to discuss this more robustly with the stake hoe stakeholders and always open to have conversations with what is possible, and there are practical challenges moving quickly. >> and yes, everything about the simplification, clarity and the need for federal legislation, and we definitely agree with that. i do think that it is something that we are going to see significant legislation throu
throughout the states as they try to meet the different thresholds as set out by the court. the one thing they would add on is that what the marketplace fairness act transactions parity act both fail to do, among other things, is a real small business exemption, like south dakota that truly protects those small businesses that are starting up, getting off their feet, and building a business that we see on e-bay and see across the country every day. a million dollars, it's like the austin powers movie where he's like, $1 million, right? and everybody laughs. we look at that from a business perspective and say a million dollars small business for national sales, we have businesses on e-bay that have three employees, they are taking home $40,000 a year and sell a
million dollar in sales. it's not an accurate depiction of a number. and to date no one has ever been able to give us any data as to why million dollars should be one. now we have a standard. south dakota is at 37 million national standard. we're not saying it has to be that high. but it has to be at a level eritrea by sales or by employees that truly takes into account the businesses at these size, the sophistication of their tax and compliance departments and how they can fit that. and i think as part of any federal legislation, leaving those small businesses out of it makes complete sense. the money is not in these tiny micro and small businesses and what they are doing online. i think 17 out of the 18, wayfair being the exception of the top retailers online,
currently collect tax in 50 states. justice roberts in his dissent said 86 out of the top 100 currently collect. big retailers out there, that's not an argument for e-bay to have. but for e-bay, a small seller exemption is part of any federal legislation is mandatory and if we can get to a place where it was a real number, i think we could get to a much easier place on how to find a permanent congressional federal bill. >> great. so, i want to leave time for audience questions, but before we get to that, we would be remiss if we didn't talk a little bit about justice kennedy's departure from the supreme court and what that means for this area of jurisprudence. obviously he wrote the majority opinion and all of d.c. is on the edge of their seat right now waiting for the announcement of
the new supreme court justice tonight, so kind of with justice kennedy's retirement, if there's more litigation in this area and it gets to the supreme court, what kind of effect will his retirement have? >> well, interesting question. taxation and george can probably speak to this better than i can. taxation when you look at supreme court cases don't neatly divide along, you know, sort of the more traditional liberal and conservative lines and so you look at the lineup of this case and the dissent is, you know, the chief justice with justice kagan, sotomayor and pbreyer ths justice ginsburg and gorsuch. its hard to know without knowing
who the specific justice is and what their tax law ideology s-what their state rights principles are, their federalism principles. i guess that's my way of punting, it's an interesting question, but, you know, i wouldn't be able to know until i know who the actual justice is. >> i think even after you know who the justice is, it's very hard to predict. you look at this very strange collection on the majority side and on the minority side. having the chief justice joining with liberal members of the court, having justice ginsburg joining with conservative members of the court, i think the court does not have a great appetite for state tax cases. it took 25 years before they decided to revisit this issue. define practicing law 25 years from now i would be glad to comment where that bench might
go. thank you. >> i'll just say would have been a whole lot better if justice kennedy retired ten days earlier. but in all seriousness, we knew justice kennedy had been very clear on his dna case, on his wanting to review quill, so we certainly -- we are that you feel, i think, again, he left language in that opinion for the future court to look at that makes it very clear distinction when looking at a commerce clause how states should be treating thresholds and small businesses. i think, you know, completely to be determined, one other factor i think we should all think about too that is a concern out there for a lot of other industries, right on e-bay you sell, you sell goods.
you know, retail type goods and that's what we're all talking about today. but what does this opinion do for other types of services, right? a lot of these taxes are goods and services. so how do states start to look at professional services, and different things like streaming services and those types of things? it's a real concern. it's something that both state legislatures, congress and the courts will be looking a lot at so be very interesting to see what, you know, a new justice and existing justices will view some of that. >> all right. so now i would like to open up the panel to questions. you have about ten questions left. probably three or four questions. here. >> i think for the staffers in this room, it would be a mistake to go home to your boss and say it looks like physical presence is dead because that's not what happened. the supreme court, george, said
don't count on us, the supreme court, and our old 50 year old physical presence rule. we'll make that go way. but congress can make physical presence the rule again and then it can use that what did you call it a quid pro quo to cover physical presence. physical presence isn't dead. supreme court just said their version is no longer law. >> the chief justice went through a series of different possibilities in regard to how congress could act including restoring physical presence test or establishing a physical presence test and then having an exception for it for states that, in fact, simplify and make more uniform their tax systems. one of the things which i'm encouraged by and agree with jennifer on, it's time for industry, states, the big box
retailers to have a serious conversation about what an american consumption tax system should look like. and the issue isn't whether the states should be deprived of revenue, the issue is how can you simplify the tax system to make it work for all participants. i would hope the panelists on this table, the people attending this committee hearing would see congressional action as an opportunity for that kind of discussion, followed by real action for greater simplification. >> another question? all right. >> selling to different states in the u.s.? >> that's a really good question because the result of the wayfair decision, if what it has done is liberate states to be able to tax without rules, which
i hope that is not how wayfair interpreted it but some states are viewing it that way, that there's no restrictions on them. states can enforce tax liability through the full faith and credit clause of the u.s. state constitution but there's no way for them to effectively enforce those requirements on companies outside of the united states. so the real effect for wayfair to advantage companies that are located in canada or for that matter located in hong kong or the uk because the customs, u.s. customs will not intercept goods for the purposes of enforcing states sale and use taxes, so it really is an action by the supreme court, probably inadvertently to favor foreign competitors over u.s. companies. >> question for george and possibly mike. your comments have been focused mainly on the sales and use tax
collection obligations that small businesses will have to shoulder. do you see any implications from the elimination of the physical presence test for other types of, let's say local business obligations or counties may try to export to nonreseller or some other business that might be exported. >> is your question, mark, whether the wayfair decision has implications for other types of decisions. >> not like state income tax more like local business licenses. >> absolutely. you know, there's a brave new frontier here. historically sovereignty has governed what the scope of state of regulatory is. that states can tax and regulate
companies located twcated withi jurisdiction but not outside of it. wayfair introduced the notion that as long as companies have some kind of contact with state they may be subject to regulatory obligations. we don't know what the limits of that are. i fully suspect states will attempt to export that. california already says if you want to sell eggs in california we're going to govern what size case your hens in ohio have to be grown in. there may be no limit to the ambition that states have to regulate companies outside of their borders. >> also, i do think there's a market limit to it, right? if you don't want to sell eggs to california then don't sell eggs to california. but it is a big market, right. so if you want to avail yourself of that market then you'll live by the regulations.
and that's a market decision, business decision. i think licensing or you go down a rabbit hole like that, you are, you know, you don't do business there. i mean that's -- but i don't know that that's something that's even been discussed. i haven't heard any discussions of that. i think states are so excited about getting this authority, they are not contemplating any kind of expansion of it into, like i said, some rabbit hole. >> i would remind you, jennifer, that the purpose of the commerce clause was to create a free market among all the states. so when your reaction to issues of taxation and regulation are if you don't want to sell to those states, be subject to their regulations, don't sell, the effect of that is to constrain the market which is
ant antithetical to what the commerce clause was. >> we should step back and think about, do we want a functioning national economy where you don't want to sell into california -- i don't think there's a lot of egg sellers on e may but i'll check. let's say you don't want to sell a specific type of electronic or specific type because you are over regulated but an import from china which is not subject to the same thing easily gets in. i don't think that's the type of functioning national economy that any of us want to have. as we go forward the next phase of this, we should be thinking because our ability to get as george pointed out to those foreign sellers is different than to the domestic sellers and it can, it can get into very sicky issues. >> i agree.
we have specific concerns, we can join together to that conversation and, you know, perhaps in a more constructive dynamic under the wayfair standard. >> looks like we're about out of time now. i want to thank you all so much. thank you for coming. this has been congressional internet briefing and we'll of a another upcoming on july 23rd. so thank you all for coming. [ applause ] . with we're live here on c-span 3. u.s. senators mark warner and marco rubio will be among the